Bakers Journal

Cadbury rejects ‘undervalued’ Kraft takeover bid

September 22, 2009
By The Canadian Press

Sept. 8, 2009, LONDON – Kraft Foods Inc. on Monday
proposed a 10.2 billion pound ($16.7 billion) takeover of Cadbury PLC, but the British
maker of chocolate, gum and candy immediately rejected the offer.

Cadbury shares shot up 41 per cent
to 803.5 pence at midday on the London Stock Exchange, about the minimum
analysts suggested Kraft would have to pay to clinch a deal.

Cadbury said the offer undervalued
the company, and expressed confidence in its “standalone strategy and growth
prospects as a result of its strong brands, unique category and geographic


Kraft was undeterred, however, and
said it would continue to seek a transaction that Cadbury's board could

Kraft, whose brands include Velveeta
cheese product and Oreo cookies, said it had proposed paying 300 pence in cash
and 0.2589 new Kraft Foods shares per Cadbury share, valuing Cadbury shares at
745 pence.

That represents a 31 per cent
premium over Cadbury's closing share price of 568 pence on Friday.

Cadbury has a 10.3 per cent share of
the world confectionary market in 2008, second only to Mars Inc. with 14.8 per
cent. Kraft was fifth at 4.5 per cent.

Cadbury has 28.4 per cent of the
world gum market; Kraft has 0.1 per cent.

Graham Jones, analyst at Panmure
Gordon&Co., recommended that shareholders hold out for at least 800 pence a

“A key question is whether there is
a counter bid, most likely from a Nestle-led consortium,” Jones said. “However,
we see the most likely scenario being Kraft being successful on improved terms.”

Jeremy Batstone-Carr at Charles
Stanley&Co. said it might take more than 800 pence.

“Note that the Kraft offer values
Cadbury on less than 2 times sales, significantly lower than the 2.3 times
sales it paid for Danone's biscuit operations or the … 3.7 times sales paid
by Mars for Wrigley,” Batstone-Carr said.

Kraft, based in Northfield, Ill., said the combination would create “a global powerhouse in snacks,
confectionery and quick meals,” with leading positions in developing markets
including India, Mexico, Brazil, China and Russia.

“This proposed combination is about
growth. We are eager to build upon Cadbury's iconic brands and strong British
heritage through increased investment and innovation,” said Irene B. Rosenfeld,
chairman and CEO of Kraft Foods.

Kraft may be in for a fight.

“Speculation is already mounting
that Hershey and Nestle may come together in one form or another to counter
bid, with Nestle potentially interested in Cadbury's gum business and Hershey
in the chocolate-confectionery brands, with other interested parties,” said
Darren Shirley, analyst at Shore Capital.

The Unite union called for meetings
with both Kraft and Cadbury to explain the impact of the proposed combination
in the United Kingdom.

Kraft indicated that it would
reverse Cadbury's intention of closing its Somerdale plant near Bristol in
southwestern England, a promised the union treated with caution.

“It is essential that no one makes
rash promises which give false hope to the work force, and in particular to our
members under threat of redundancy at the Somerdale plant,” said Jennie Formby,
national officer of Unite.

Cadbury nearly tripled its net
profit in the first half of the year as the company pocketed a big gain from
the sale of its beverage business and chocolate consumption rose.

Net profit in the first half was 313
million pounds, compared to 113 million pounds during the same period a year
earlier. Revenue was up 13 per cent to 2.8 billion pounds, or up 4 per cent on
a constant currency basis.

The company, formerly Cadbury
Schweppes, demerged its Americas Beverages business last year and disposed of
its Australia Beverages business to Asahi Breweries of Japan in April.

Kraft's second-quarter profit rose
11 per cent to $827 million, though revenue fell 5.9 per cent to $10.16 billion
as the dollar's strength weighed on international sales.

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